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Home Prices Keep Falling

Housing markets have taken a turn for the worse, with the widely followed S&P/Case-Shiller index declining more than analysts had forecast in October, lending credence to the housing bears who have predicted a double dip.

The real-estate sector has been one of the sticking points in the Fed and the government’s attempts to revive the U.S. economy. The 20-city composite S&P/Case-Shiller Index, which measures the value of single homes in 20 metropolitan areas, declined 1% from September to October on a seasonally adjusted basis, S&P said Tuesday. That exceeded the 0.8% dip expected by Wall Street analysts. The index, which takes January 2000 as its base with a value of 100, hit 145.32, making October the fifth consecutive month where annual growth rates moderated from their prior month’s pace.

“The double dip is almost here,” said David Blitzer, chairman of S&P's index committee.“There is no good news in October’s report.” Explaining that “the trends we have seen over the past few months have not changed,” Blitzer cited expired tax incentives and a “lackluster” national economy as some of the causes. “On a year-over-year basis, sales are down more than 25% and the month’s supply of unsold homes is about 50% above where it was during the same months of last year.”

Atlanta and Minneapolis suffered the steepest drops, with seasonally adjusted falls of 2.1% and 1.8% respectively. Denver and Washington were the only metropolitan regions to show sequential price gains on a seasonally adjusted basis, gaining 0.3% and 0.1% respectively. Excluding seasonal corrections, all 20 areas showed declines.

Stalled foreclosures waiting to hit the market will put additional downward pressure on prices, according to Westwood Capital. “The market has still not completed the price discovery necessary to determine the final value of housing – after all, easy money policy is still producing affordability that has masked the failure of prices to completely readjust to normalized levels,” Westwood said in a research note. “The most striking thing about [Tuesday’s] report is that we are seeing a repeat of the price decline patterns that appeared during the 2006-2009 downturn,” pointing to declines starting in “sand state” markets and gradually spreading to the balance of the remaining markets, according to Westwood's managing partner, Daniel Alpert.

The 20-city index is still 4.4% above its April ’09 trough, but remains 29.6% down from its July 2006 peak. Ben Bernanke and the Federal Reserve have pledged to do whatever is in their power to help the economic recovery. In the FOMC’s last meeting of the year, held on December 14, the committee pledged to continue its policy of quantitative easing by purchasing long and medium-term Treasuries, in order to keep interest rates low and stimulate risk appetite. Housing bears abound, though, such as Nouriel Roubini, who predicted a double-dip in housing early in December, claiming problems could even spread to the “prime” market. (See Dr. Doom Bullish On Housing? Roubini Buys a $5.5 million Manhattan Condo).